The Federal Government Got Oklahoma Hooked On Coal, Now It's Forcing a Detox

In a broadcast story last week, StateImpact talked about how Oklahoma relies heavily on six major coal-fired power plants and the Wyoming coal that’s needed to run them — despite sitting on one of the largest supplies of natural gas in the country.

We wanted to find out what explains this paradox. So we did some research and called some power companies.

The short answer: It seems the federal government is to blame.

The same federal government that is currently forcing some coal plants to shut down in favor of other energy sources, including, ironically, natural gas.

It’s a long story, one about the logistics of transporting natural gas, botched government attempts at price-setting, and miscalculations about how much the U.S. has in gas reserves.

A New Fuel

It all started at the beginning 20th century, when natural gas was taking off as a fuel source. Construction started on pipelines to carry the gas, first between cities and towns, and then between states.

But there weren’t any federal regulations for the interstate transport and sale of natural gas until the 1930s. From the Natural Gas Suppliers Association’s website naturalgas.org:

…due to concern regarding the monopoly power of interstate pipelines, as well as conglomeration of the industry, the federal government saw fit to step in to fill the regulatory gap created by interstate pipelines.

The government started setting the rates for interstate natural gas delivery in the ’30s. And in the ’50s, it set rates for sales between producers and pipeline companies. But the job became overwhelming for the Federal Power Commission, the agency charged with regulating interstate gas sales (and the precursor to the modern-day Federal Energy Regulatory Commission).

According to naturalgas.org, it was more difficult and took much longer for the FPC to set gas prices than had been anticipated. By 1970, rates had been set for only two of five gas-producing regions of the country. In many areas, prices were stuck at 1959 levels.

The artificially low prices were good for the consumer, but they gave natural gas producers little incentive to explore new reserves. The price customers paid was kept low, but the cost of drilling for and transporting the gas wasn’t.

Energy Shortage

By the late 1970s, that lack of exploration contributed to the growing fear that the U.S. could soon run out of oil and gas during the energy crisis. At the time the country wasn’t aware of the large supply of natural gas it had, and hydraulic fracturing — fracking — hadn’t come far enough to take advantage of it, says Brian Alford, a spokesman for Oklahoma Gas & Electric, the state’s largest electric utility.

“The current thinking was that the U.S. was going to run out of natural gas. So, utilities needed to explore other options for generating electricity,” Alford says.

The conservative National Review magazine pointed out in a web post from June 2012 that even President Jimmy Carter reinforced the idea that the natural gas was almost gone. In a televised speech in August 1977, Carter advocated for a transition away from oil and gas, and toward alternative energy sources — and coal.

“We must look back in history to understand our energy problem. Twice in the last several hundred years there has been a transition in the way people use energy,” Carter said. “Because we are now running out of gas and oil, we must prepare quickly for a third change, to strict conservation and to the use of coal and permanent renewable energy sources, like solar power.”

Congress’ response was to effectively ban the use of natural gas as a fuel in new power plants with the Power Plant and Industrial Fuel Use Act in 1978. It required all new power plants to be able to use coal or another alternate fuel as its primary fuel source.

As a result, the number of coal-fired power plants increased. Oklahoma built six in the ’70s and ’80s. About the same time, Congress passed amendments to the Clean Air Act to prevent pollution that led to something called “acid rain.” The use of sulfur-rich coal like the kind we have in Oklahoma was limited; Oklahoma began importing low-sulfur coal from Wyoming instead.

Congress repealed the Power Plant and Industrial Fuel Use Actin 1987. But as Robert Bryce discussed in the National Review story, the move toward coal had already been made.

Although the law was in effect for less than a decade, it distorted the power sector for years to come. In 1978, natural gas was generating 13.8 percent of U.S. electricity. By 1988 — a decade after the Powerplant and Industrial Fuel Use Act was passed — natural gas’s share of the U.S. electricity business had fallen to a modern low of just 9.3 percent. By contrast, between 1978 and 1988, coal’s share of the U.S. electricity generation market soared, going from 44.2 percent to 56.9 percent, the highest level of the modern era.

Oklahoma was stuck with its coal-fired power plants.

A Turn Against Coal

Now, the federal government has come full circle and is pushing power plants away from coal, this time because of climate and health concerns. New regulations are forcing coal plants across the country to either shutdown, or install scrubbers to limit the release of sulfur dioxide. The result will likely be more national reliance on natural gas, with renewableenergy sources still unable to meet electricity demand.

The only problem is that it could cost close to a billion dollars to replace just one of Oklahoma’s coal-fired plants with natural gas. So Public Service Company of Oklahoma and Oklahoma Gas & Electric, the state’s two largest power utilities, have big decisions to make.

PSO has already agreed to shut down two of its coal-fired units at its Oologah plant, but OG&E is fighting the regulations in court. And if history is any indication, there’s no guarantee the state won’t be forced to use a different energy source a decade or two from now.